Enforcement Ramps Up Against Unlicensed California Cannabis Operators

California has experienced some growing pains as it has continued to roll out its regulated cannabis regime pursuant to the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA”), but despite delays in implementing permanent regulations, the state and many local jurisdictions are not waiting to enforce against unlicensed operators. We first covered this dynamic back in April, and the enforcement trend has only accelerated since then.

As we’ve noted many times before, in order for state legalization to succeed in the long run, regulators will need to take a tough stance against black and “gray” cannabis markets in order to ensure an even playing field for licensed, compliant operators. Other states have already taken action to make sure that unlicensed, unregulated cannabis operators don’t undermine their licensed counterparts, and California is finally beginning what will undoubtedly be a long and extensive endeavor to do the same. Although the Compassionate Use Act will not be repealed until January 9, 2019, there is no protection for cannabis businesses engaged in commercial activity without a local and state license.

And the enforcement in California will come from both state and local authorities. The City of Los Angeles recently launched a massive crackdown on unlicensed, illegal cannabis businesses, filing misdemeanor charges against more than 500 people and shutting down 105 illegal cannabis businesses, including cultivation operations, extraction labs, and delivery companies across the city. In Los Angeles, a charge of unlicensed commercial cannabis activity within the city carries a potential sentence of six months in jail and $1,000 in fines. Los Angeles’ City Attorney Mike Feuer, who has a track record of going after illegal cannabis businesses within the city, summed up the city’s reasoning behind its recent enforcement actions succinctly:

If they’re going to go through this process, it just cannot be the case that others that flout the rules are allowed to function. It’s bad for those who buy from them, it’s bad for the communities in which they’re located and, again, it threatens to undermine the viability of a system that’s predicated on lawful licensing.”

Although there are currently around 165 approved cannabis storefronts and delivery businesses in Los Angeles, there are many more operating without the necessary approvals, a problem that has plagued the city for years and will likely be an ongoing issue.

The state is also commencing its own enforcement actions in conjunction with local authorities, and has sent out several emails in recent weeks to stakeholders with the details of those crackdowns. Enforcement actions are being carried out by the Bureau of Cannabis control (BCC) and the Department of Consumer Affairs’ Division of Investigation – Cannabis Enforcement Unit (DOI-CEU). It appears that many of these actions, including one last month against an unlicensed cannabis home delivery business in Sacramento called The Cannaisseur Club, and another against an unlicensed cannabis retail store in Costa Mesa called Church of Peace and Glory, both resulting in criminal charges, have been initiated based on complaints received by the BCC (complaints related to unlicensed commercial cannabis activity can be filed here, by the way). Based on our experienced in other jurisdictions, we anticipate that the number of complaints filed, especially by licensed and compliant operators, will continue to increase.

As a reminder, all commercial cannabis activity in California requires a license from either the BCC, the Department of Public Health, or the Department of Food and Agriculture. Obtaining these licenses requires local approval. This is only the beginning of extensive enforcement by both state and local authorities, which will be necessary to ensure that California’s regulated cannabis market succeeds, not just in sales, but in eradicating the black market.

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The Canna Law Blog is a forum for discussion about the practical aspects of cannabis law and how it impacts those involved in this growing industry. We will provide insight into how canna businesspeople can use the law to their advantage…

Disclaimer

Please be mindful that possessing, using, distributing and selling marijuana are all federal crimes and that this blog is not intended to give you any legal advice, much less lead you to believe that marijuana is legal under federal law. Please also note that even though marijuana is illegal under federal law, you will need to pay federal taxes just as though you are a legal entity. This is true even if you are a state law not-for-profit entity.

Our team of cannabis business attorneys focuses on the corporate, compliance, intellectual property, and consumer product issues impacting the cannabis industry. We represent medical and recreational businesses in multiple states, and we continue to offer our clients the proactive approach and strategic edge that this unique industry demands.